<PAGE>

================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington D. C. 20549

                               ----------------


                                   FORM 10-Q
(Mark one)
     [x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 2001

                                      OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

              For the transition period from ________to ________.

                        Commission File Number 0-19640

                               ----------------


                              VERTEL CORPORATION
             (Exact name of Registrant as specified in its charter)

             California                                        95-3948704
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                        Identification No.)

21300 Victory Boulevard, Suite 700, Woodland Hills, California      91367
       (Address of principal executive offices)                  (Zip code)

                                (818) 227-1400
             (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
Registrant was required to file such reports), and  (2) has been subject to such
filing requirements for the past ninety days.

                                 Yes X   No __.
                                     -

As of April 30, 2001 there were 28,369,892 shares of common stock outstanding.

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<PAGE>

                        PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                              VERTEL CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                          March 31,      December 31,
                                                                             2001            2000
                                                                          ---------      ------------
<S>                                                                       <C>            <C>
                                    ASSETS

Current assets:
  Cash and cash equivalents.............................................   $  6,329       $ 10,827
  Short-term investments................................................      3,000          1,096
  Trade accounts receivable (net of allowance of $543 as of
    March 31, 2001 and $536 as of December 31,2000).....................      3,179          3,453
  Prepaid expenses and other current assets.............................        618            215
                                                                           --------       --------
    Total current assets................................................     13,126         15,591

Property and equipment, net.............................................        892          1,111
Investments.............................................................        578            759
Goodwill, net...........................................................      2,795          3,034
Other assets............................................................        228            314
                                                                           --------       --------
                                                                           $ 17,619       $ 20,809
                                                                          =========       ========

                     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable......................................................   $    500       $    669
  Accrued wages and related liabilities.................................      1,114          1,149
  Accrued restructuring expenses........................................         48             48
  Accrued taxes payable.................................................        381            480
  Other accrued liabilities.............................................      1,437          1,530
  Deferred revenue......................................................      1,237          1,091
                                                                           --------       --------
    Total liabilities...................................................      4,717          4,967
                                                                           --------       --------

Shareholders' equity:
  Preferred stock, par value $.01, 2,000,000 shares authorized;
    none issued and outstanding
  Common stock, par value $.01, 100,000,000 shares authorized;
    shares issued and outstanding: 2001, 28,369,892;
        2000, 28,326,285................................................        284            283
  Additional paid-in capital............................................     86,593         86,510
  Accumulated deficit...................................................    (73,353)       (70,502)
  Accumulated other comprehensive loss..................................       (622)          (449)
                                                                           --------       --------
    Total shareholders' equity..........................................     12,902         15,842
                                                                           --------       --------

                                                                           $ 17,619       $ 20,809
                                                                           ========       ========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                              VERTEL CORPORATION

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                   (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                          Three Month Period Ended
                                                                          March 31,      March 31,
                                                                             2001           2000
                                                                          ---------      ---------
<S>                                                                       <C>            <C>
Net revenues:
  License.............................................................     $ 1,336        $ 2,911
  Service and other...................................................       1,262          2,100
                                                                           -------        -------
     Net revenues.....................................................       2,598          5,011
                                                                           -------        -------

Cost of revenues:
  License.............................................................         174            223
  Service and other...................................................       1,772          1,414
                                                                           -------        -------
     Total cost of revenues...........................................       1,946          1,637
                                                                           -------        -------

Gross profit..........................................................         652          3,374
                                                                           -------        -------

Operating expenses:
  Research and development............................................         860          1,453
  Sales and marketing.................................................       1,782          1,578
  General and administrative..........................................         883          1,096
  General and administrative-non-cash stock compensation..............          -             259
  Goodwill amortization...............................................         238            238
                                                                           -------        -------
     Total operating expenses.........................................       3,763          4,624
                                                                           -------        -------

Operating loss........................................................      (3,111)        (1,250)
Other income, net.....................................................         174            250
                                                                           -------        -------

Loss before provision for income taxes................................      (2,937)        (1,000)
Income tax benefit (provision)........................................          86            (40)
                                                                           -------        -------
Net loss..............................................................      (2,851)        (1,040)
Other comprehensive loss..............................................        (173)           (13)
                                                                           -------        -------
Comprehensive loss....................................................     $(3,024)       $(1,053)
                                                                           =======        =======

Basic and diluted net loss per common share...........................     $ (0.10)       $ (0.04)
                                                                           =======        =======

Weighted average shares outstanding used in
  net loss per common share calculations - basic and diluted..........      28,354         26,992
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                              VERTEL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                     Three Month Period Ended
                                                                     March 31,      March 31,
                                                                        2001          2000
                                                                     ---------      ---------
<S>                                                                  <C>            <C>
Cash flows from operating activites:
  Net lost from operations........................................    $(2,851)       $(1,040)
  Adjustments to reconcile net loss from operations to net
    cash provided by (used for operating activities:
    Depreciation and amortization.................................        567            630
    Reserve for returns and bad debts.............................          7              2
    Non-cash stock compensation...................................         -             259
    Change in operating assets and liabilities....................       (386)          (658)
                                                                      -------        -------

    Net cash used for operating activities........................     (2,663)          (807)
                                                                      -------        -------

Cash flows from investing activities:
  Net sales (purchases) of short-term investments.................     (1,904)         5,677
  Purchases of property and equipment.............................       (109)           (91)
  Cash paid for business acquisition, net of cash acquired........         -              (5)
  Changes in other assets.........................................         86              1
                                                                      -------        -------

  Net cash provided by (used for) investing activities............     (1,927)         5,582
                                                                      -------        -------

Cash flows from financing activities:
  Proceeds from issuance of common stock..........................         84          2,749
  payments on capital lease obligations...........................         -             (26)
                                                                      -------        -------

  Net cash provided by financing activities.......................         84          2,723
                                                                      -------        -------

Effect of exchange rate changes on cash...........................          8            (13)
                                                                      -------        -------

Net increase (decrease) in cash and cash equivalents..............     (4,498)         7,485

Cash and cash equivalents, beginning of period....................     10,827          3,974
                                                                      -------        -------

Cash and cash equivalents, end of period..........................    $ 6,329        $11,459
                                                                      =======        =======
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                               VERTEL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  General

     The consolidated financial statements include the accounts of Vertel
Corporation and its subsidiaries (the "Company").  Intercompany balances and
transactions have been eliminated in consolidation.  The interim consolidated
financial statements are unaudited.  In the opinion of management, the interim
financial statements include all adjustments, consisting of only normal,
recurring adjustments, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows.

     It is suggested that these consolidated financial statements and the
accompanying notes be read in conjunction with the audited consolidated
financial statements and the accompanying notes for the year ended December 31,
2000 included in the Company's Annual Report on Form 10-K.  The results of
operations for the three month period ended March 31, 2001 are not necessarily
indicative of results that may be expected for the full year.


2.  Statement of Cash Flows

     Increases (decreases) in operating cash flows arising from changes in
assets and liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                                    Three Month Period Ended
                                                                    -------------------------
                                                                    March 31,       March 31,
                                                                      2001            2000
                                                                    ---------       ---------
<S>                                                                 <C>              <C>
Trade accounts receivable......................................      $  267          $  259
Prepaid expenses and other current assets......................        (403)            132
Accounts payable...............................................        (169)           (682)
Accrued wages and related liabilities..........................         (35)           (110)
Cash payments for restructuring expenses.......................           -            (331)
Accrued taxes payable..........................................         (99)             77
Other accrued liabilities......................................         (93)            317
Deferred revenue...............................................         146            (320)
                                                                    --------        --------
                                                                     $ (386)         $ (658)
                                                                    ========        ========
</TABLE>
     No cash payments were made for restructuring expenses in the three
months ended March 31, 2001.


3. Segment Reporting

     The Company operates and reports its activities through two principal
segments, license and service.  The following schedule reflects revenues and
gross profit for the two segments for the three month periods ended March 31,
2001 and March 31, 2000 (in thousands):

                                            License      Service      Total
                                           ---------    ---------    -------
2001
  Revenues...........................        $1,336       $1,262      $2,598
  Gross profit.......................         1,162         (510)        652
2000
  Revenues...........................         2,911        2,100       5,011
  Gross profit.......................         2,688          686       3,374

     All of the Company's revenues were earned from external customers.

     Gross profit is used as the measure of profit and loss for segment
reporting purposes as it is viewed by key decision-makers as the principal
operating indicator in measuring segment profitability.

                                       5
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     The Company has not recorded or managed its balance sheet accounts by
segment and does not record depreciation and amortization by segment.


4.  Recent Accounting Pronouncements

     In June 1998, June 1999, and June 2000, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133",
and SFAS No. 138 "Accounting for Derivative Instruments and Hedging Activities -
An Amendment to SFAS No. 133". SFAS 133, as amended, requires the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative and
the resulting designation. The Company does not currently participate in hedging
activities or own derivative instruments. The Company's adoption of SFAS No.
133, as amended, in the first quarter of 2001 did not have any impact on its
consolidated financial statements.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS

General

     We are a provider of telecommunications software and middleware in the form
of products and services for network management applications and
telecommunications devices. We develop, market, and support vertically
integrated, object oriented software solutions for the management of public
telecommunications networks. Our solutions cover the Telecommunications
Management Network (TMN) market and the emerging Common Object Request Broker
Architecture (CORBA) telecommunications market. Our TMN products are based on
the International Telecommunications Union's TMN standard and support network
operation and management over diverse transmission media and protocols. We
believe that we offer the only commercially available, fully interoperable suite
of products and tools that span the network element, element management, network
management and service management layers of the TMN model. Our CORBA software
products (e*ORB) are designed to enable Operations Support Systems (OSS) and
network infrastructure to integrate in ways which will accelerate network and
service deployment and provide for the transition from TMN managed networks to
CORBA solutions. Our CORBA software also provides command and control software
infrastructure for telecommunications hardware and systems. The Vertel Mediation
Framework (Mediation Framework) software product is used to simplify and
accelerate the integration of network infrastructure with telecom OSS
infrastructure. We offer embedded software for network equipment and software
solutions to allow telecommunications service providers to integrate
proprietary, Simple Network Management Protocol (SNMP), TMN and CORBA based
network management systems with standards-based solutions. In addition, we offer
object oriented software platforms that facilitate the rapid development of
network and service management applications and features such as fault detection
and automatic response, remote improvement of network configuration, automation
of accounting and billing functions and optimization of network traffic and
security.

     In September 2000, we announced plans to offer a new set of services based
on our Mediation Framework. These web-based hosted services, called
WebResolve(TM), are designed to automate service assurance functions for
telecommunications providers. Costs of approximately $555,000, consisting
primarily of payroll and related overhead costs for service and sales and
marketing personnel, and contract services relating to the introduction of
WebResolve are included in the first quarter of 2001. However, we do not expect
any material revenues from WebResolve until the second half of 2001.

     We also provide professional services, such as turnkey management
solutions, in addition to product integration and product application services.
Our professional services include system analysis and design, source code
portation and interface, custom application development, conformance and
certification testing and technical support services.

     We recognize software license revenue based on the American Institute of
Certified Public Accountants Statement of Position No. 97-2, as amended. Our
software license agreements generally do not provide for a right of return. We
maintain reserves for returns and potential credit losses, neither of which has
had a material effect on our results of operations or

                                       6
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (continued)

financial condition to date.

     Pursuant to our license agreements, licensees may distribute binary or
embedded versions of our software in our licensees' products. Royalties or
runtime revenues become due upon shipment of products containing the binary or
embedded code. Generally, software license royalty revenue is recognized upon
notification by our licensee that products incorporating our software have been
shipped by our licensee or, for customers for which we have sufficient
historical information, upon estimated amounts which we expect the customer to
report. Because of the development times required for licensees to design and
ship products containing binary or embedded software, we generally do not
receive royalties from shipments of such products for at least three quarters
from the date we initially ship source code.

     We separately offer professional services, including system design and
engineering, custom application development, source code portation, conformance
testing and certification and application development. Many of our customers
contract for professional services. These services are typically based on a
detailed statement of work. Professional services revenue varies according to
the size, timing and complexity of the project and is typically billed based on
satisfaction of certain milestones or on a per day fee. Revenue from
professional services is recognized using the percentage of completion method,
or on a time and materials basis. In certain cases, customers reimburse us for
non-recurring engineering efforts. Such reimbursements are recognized as revenue
and associated costs are reflected as cost of revenues.

     Our technical support services consist of product support and maintenance,
training and on-site consulting. Product support and maintenance fees have
constituted the majority of technical support and service revenue. Product
support and maintenance fees are recognized on a straight-line basis over the
term of the contract, which is generally twelve months. Other revenue from
training and on-site consulting is recognized as performed.

     While a significant portion of our revenues depend on products complying
with the TMN standard and must be evaluated in light of the risks and
uncertainties frequently encountered by companies dependent upon such standards
and products, we continue to expand our products and technologies to reduce our
dependence on TMN. In addition, our markets are new and rapidly evolving which
heightens these risks and uncertainties. To address these risks, we must, among
other things, successfully implement our marketing strategy, respond to
competitive developments, continue to develop and upgrade our products and
technologies more rapidly than our competitors and commercialize our products
and services incorporating these enhanced technologies. There can be no
assurance that we will succeed in addressing any or all of these risks.


FORWARD-LOOKING INFORMATION AND SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made orally
or in press releases, conferences, reports, on our web site or otherwise, in the
future by us or on our behalf. Statements that are not historical are forward-
looking. When used by or on behalf of us, the words "expect," "anticipate,"
"estimate," "believe," "intend," and similar expressions generally identify
forward-looking statements.

     Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to us and the markets we serves. Particular
risks and uncertainties facing us at the present include our ability, including
financial ability, to continue to invest in research and development necessary
for the development of new and existing products (including WebResolve) that are
required to offset the continuing decline in Telecommunications Management
Network (TMN) revenues; the timely and successful development of existing and
new markets; the maturing nature of the TMN product marketplace and the
financial uncertainties associated with an anticipated decline in TMN revenues;
the fact that some of our products are relatively new and, although we see
developing market interest, it is difficult to predict sales for new products
such as e*ORB, Mediation Framework and WebResolve and the market may or may not
ultimately adopt these technologies; the length of our sales cycle for most of
our products, including e*ORB and Mediation Framework, making initial license
sales and future royalties difficult to forecast;

                                       7
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (continued)

additional difficulty in predicting royalty revenue because that revenue is
dependent on successful development and deployment by our customers of our
products; fluctuation from quarter to quarter in revenue from our professional
service unit as a result of a limited number of large consulting contracts;
whether we have large contracts and the timing of such contracts; loss of key
customer, partner or alliance relationships and the possibility that we may not
be able to replace the loss of a significant customer; the dependence on a
limited number of customers for a significant portion of our quarterly license
revenues; size and timing of license fees closed during the quarter which may
result in large swings in quarterly operating results and the likely continued
significant percentage of quarterly revenues recorded in the last month of the
quarter, frequently in the last weeks or even days of a quarter, which further
adds to the difficulty of forecasting and leads to a substantial risk of
variance from actual results and our ability to control expenditures at a level
consistent with revenues.

     Additionally, more general risk factors include the possible development
and introduction of competitive products and new and alternative technologies by
our competitors; the increasing sales and marketing costs of attracting new and
retaining existing customers; pricing, currency and exchange risks; governmental
and regulatory developments affecting us and our customers; the ability to
identify, conclude, and integrate acquisitions on a timely basis; the ability to
attract and/or retain essential technical or other personnel; political and
economic uncertainties associated with conducting business on a worldwide basis.
Further risks inherent in our business are listed under "Risk Factors" in Part
I, Item I of Vertel's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, which is incorporated by reference.

     Readers are cautioned not to place undue reliance on any forward-looking
statement and to recognize that the statements are not predictions of actual
future results. Actual results could differ materially from those anticipated in
the forward-looking statements and from historical results, due to the risks and
uncertainties referred to above, as well as others not now anticipated. The
foregoing statements and risk factors are not exclusive and further information
concerning us and our business, including factors that potentially could
materially affect our financial results, may emerge from time to time. It is not
possible for management to predict all risk factors or to assess the impact of
such risk factors on our business. We undertake no obligation to revise or
publicly release the results of any revision to our forward-looking statements.

     The following discussion should be read in conjunction with the unaudited
consolidated financial statements and accompanying notes, included in Part I -
Item 1 of this Quarterly Report, and the audited consolidated financial
statements and accompanying notes for the year ended December 31, 2000 contained
in our Annual Report on Form 10-K.


Results of Operations

     Net Revenues.   Net revenues decreased 48% to $2,598,000 for the three
months ended March 31, 2001 (the "first quarter of 2001") compared to $5,011,000
for the three months ended March 31, 2000 (the "first quarter of 2000").  The
decrease was primarily due to a lower demand for TMN products in the U.S and a
decrease in PSU revenue.  Sequentially, net revenues decreased 5% from
$2,742,000 for the three months ended December 31, 2000 (the "fourth quarter of
2000").

     License.  License revenues consist primarily of license fees and royalties
derived from our software solutions and development platforms. License revenues
decreased 54% to $1,336,000 during the first quarter of 2001 from $2,911,000
during the first quarter of 2000, primarily as a result of lower TMN revenues
and lower revenues from legacy CORBA products. While we expect to continue to
sell TMN-based software in the near term, particularly in Asia and the Pacific
Rim, we expect that these products will be phased out over time as new
technologies such as e*ORB and Mediation Framework take its place.

     Service and Other.  Service and other revenues, which consist primarily of
fees from professional service unit (PSU) projects, software maintenance,
training and non-recurring engineering services, decreased 40% to $1,262,000
during the first quarter of 2001 from $2,100,000 during the first quarter of
2000. The decrease was the result of lower PSU revenue ($840,000) due to fewer
and smaller projects.

     Sales to customers outside of the U.S. comprised approximately 45% of net
revenues in the first quarter of 2001 compared to approximately 23% in the same
period of 2000. We have historically reported a high percentage of sales to
customers outside of the United States and we expect that international sales
will continue to be significant. However, our

                                       8
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (continued)

sales cycle is usually lengthy and results in quarterly fluctuations between
geographic markets. In addition, a decline in foreign currencies versus the
United States Dollar may reduce our competitiveness in international markets and
any political or economic turmoil in our major Asian markets (China, Japan and
Korea) could impact future sales in the affected regions.

     Revenues from Alcatel, Kyoei Sangyo and Nortel Networks comprised
approximately 17%, 16% and 10% of net revenues, respectively, in the first
quarter of 2001. Revenues from Alcatel and Nortel Networks comprised
approximately 31% and 19% of net revenues, respectively, in the first quarter of
2000. No other single customer accounted for more than 10% of our revenues in
the first quarter of 2001 and 2000.

     The telecom industry has experienced an economic slow down, dating back to
the third quarter of 2000. As with many other companies in our industry we have
shown lower than anticipated revenues for the past several quarters and it is
anticipated that this slowdown will last at least through the first half of
2001. Management anticipates that revenues in both licensing and service
segments will continue to be difficult to predict for a number of reasons. Our
sales cycle for our products, including the e*ORB product, is long, often
requiring six to nine months from initial contact to completion of a sale and
recording of revenue. Once a prospect becomes a customer, additional future
revenues remain difficult to predict and are dependent on the customer's timing
and success in developing and deploying products containing our software.
Several of our important products are new and we do not yet have a sales history
on which to base predictions for future revenues. If we have a customer that
contributes a large percentage of revenues during one period, it may be
difficult to replace those revenues in a future period. Additionally, we can not
estimate the timing or extent of the continuing decrease in revenues for TMN-
based products.

     Cost of Revenues - License.  Cost of license revenues consists primarily of
royalty fees paid for third party software incorporated in our products, the
cost of reproduction of our software and user documentation, and delivery of
software. Cost of license revenues was $174,000 and $223,000 for the first
quarters of 2001 and 2000, respectively, representing 13% and 8% of license
revenues, respectively. The lower cost of license revenues in dollar terms in
2001 was primarily the result of lower royalties paid to third parties due to
lower licensing revenues, including lower licensing revenues from products
containing third party software. The higher cost of license revenues in
percentage terms in 2001 was the result of the lower licensing revenues.

     Cost of Revenues - Service and Other.  Cost of service and other revenues
consists primarily of costs associated with performing professional consulting
services, software maintenance and technical support to customers such as
telephone support and costs associated with training services, non-recurring
engineering services and our WebResolve service assurance organization. Cost of
service revenues was $1,772,000 and $1,414,000 for the first quarters of 2001
and 2000, respectively, representing 140% and 67% of service revenues,
respectively. The increase in percentage of cost of service revenues in 2001 was
the result of expenses relating to WebResolve ($388,000), and the redeployment
of certain engineering personnel from our research and development organization
to PSU. We expect to hire additional personnel to expand our capabilities in
anticipation of additional consulting service contracts from customers and to
staff WebResolve. To the extent that new consulting service contracts and
revenue from WebResolve do not materialize, our future profit margins from
services would be adversely impacted.

     Research and Development.   We have historically made significant
investments in research and development. Our R&D expenditures are concentrated
in the areas of CORBA product development (primarily e*ORB product) and related
application services and in our Mediation Framework which is designed for the
integration of telecom Operation Support Systems and the underlying network
equipment management systems. The major components of R&D expenses are
engineering salaries, employee benefits and associated overhead, fees to outside
contractors, the cost of facilities and depreciation of capital equipment, which
consists primarily of computer and test equipment. Costs related to R&D in
certain cases are offset by customer reimbursement of non-recurring engineering
efforts.

     Total R&D expenses decreased 41% to $860,000 in the first quarter of 2001
from $1,453,000 in the first quarter of 2000. The decrease in R&D expenses was
primarily the result of lower incentive compensation ($102,000), consulting
($60,000), and payroll and related facilities costs ($439,000) due to the
redeployment of engineering personnel to the PSU and the sales and marketing
functions in the first quarter of 2001.

                                       9
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (continued)

     Sales and Marketing.   Sales and marketing expenses consist primarily of
personnel and associated costs and selling and marketing programs such as trade
shows and other promotional costs. We believe that substantial sales and
marketing expenditures are essential to develop opportunities for revenue growth
and to sustain our competitive position. Sales and marketing expenses are
expected to continue to comprise a significant percentage of our total expenses
because of costs associated with supporting the worldwide sales and marketing
functions necessary to meet the needs of our customer base and respond to
opportunities in the CORBA, mediation and TMN marketplaces.

     Sales and marketing expenses increased 13% to $1,782,000 in the first
quarter of 2001 from $1,578,000 in the first quarter of 2000. The increase in
the first quarter of 2001 was primarily due to selling and marketing expenses
related to WebResolve ($167,000) and the redeployment of certain engineering
personnel in the first quarter of 2001. The increase was partially offset by
lower sales commissions ($16,000) due to lower revenues in the first quarter of
2001 as compared to the first quarter of 2000.

     General and Administrative.   General and administrative expenses consist
primarily of salaries, facilities costs and other related expenses for
administrative, executive and financial personnel as well as professional fees
and investor relations costs. General and administrative expenses decreased 19%
to $883,000 in the first quarter of 2001 compared to $1,096,000 in the first
quarter of 2000. The decrease in the first quarter of 2001 was primarily the
result of lower executive incentive compensation ($84,000) and lower
professional fees related to merger and acquisition activities ($73,000).

     General and Administrative - Non-Cash Stock Compensation.   We had no non-
cash stock compensation in the first quarter of 2001. We had non-cash stock
compensation of $259,000 in the first quarter of 2000. The charges in the first
quarter of 2000 relate to the value of stock options held by non-employee
directors which vested during the period.

     Goodwill Amortization.  Goodwill amortization for the first quarter of 2001
was $238,000, the same as in the first quarter of 2000. Goodwill resulted from
the purchase of Expersoft in March of 1999 and is being amortized over five
years at approximately $238,000 per quarter.

     Operating Loss. The Company's operating loss increased 149% to $3,111,000
in the first quarter of 2001 from $1,250,000 in the first quarter of 2000, due
primarily to lower license and service revenues and costs related to WebResolve.
The loss was partially offset by lower research and development, general and
administrative and non-employee stock compensation, as discussed above.

     Other Income, Net.  Other income, net decreased $76,000 to $174,000 in the
first quarter of 2001 compared to $250,000 for the first quarter of 2000. Other
income, net for the first quarter of 2001 consists primarily of interest income
($143,000) and net sub-lease income ($26,000). Other income, net for the first
quarter of 2000 consisted primarily of interest income ($157,000), a gain on
termination of a capital lease ($55,000) and sub-lease income ($40,000).

     Provision for Income Taxes.   We recorded a benefit for income taxes of
$86,000 in the first quarter of 2001 as compared to a provision of $40,000 in
the first quarter of 2000. The benefit in 2001 was due primarily to the
expiration of certain tax contingencies ($113,000) but was partially offset by a
foreign tax provision for the current quarter ($38,000). The income tax
provisions are primarily for non-U.S. taxes as the Company anticipates utilizing
net operating losses to offset any pre-tax income.

                                       10
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources

     Net cash used for operating activities during the first quarter of 2001 was
$2,663,000 compared to $807,000 used for operating activities in the first
quarter of 2000. The negative cash flow from operations in the first quarter of
2001 was primarily the result of the net loss from operations ($2,851,000), an
increase in prepaid expenses due to the timing of insurance payments ($403,000),
and a decrease in accounts payable ($169,000). The amounts were partially offset
by a decrease in accounts receivable ($267,000), an increase in deferred revenue
($146,000) and non-cash depreciation and amortization ($567,000).

     Net cash used for investing activities during the first quarter of 2001 was
$1,927,000 compared to net cash provided by investing activities of $5,582,000
in the first quarter of 2000. The net cash used for investing activities in the
first quarter of 2001 resulted from net purchases of short-term investments
($1,904,000) and purchases of property and equipment ($109,000), which were
partially offset by a decrease in other assets ($86,000).

     Net cash provided by financing activities during the first quarter of 2001
was $84,000 compared to net cash provided by financing activities in the first
quarter of 2000 of $2,723,000. The net cash provided during the first quarter of
2001 was due to the exercise of stock options under the Company's stock option
plans ($84,000).

     We believe that the cash and short-term investments balance of $9,329,000
at March 31, 2001 will be sufficient to meet liquidity requirements for the next
twelve months. From time to time, we may also consider the acquisitions of, or
evaluate investments in, certain products and businesses complementary to our
business. Any such acquisitions or investments may require additional capital
resources. There can be no assurance that such additional financing will be
available, if needed, or, if available, will be on terms satisfactory to us.

     At March 31, 2001, our long-term liquidity needs consisted principally of
operating lease commitments related to facilities and office equipment.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     (a) Quantitative Information About Market Risk.

          Our exposure to market risk for changes in interest rates relates
     primarily to our investment portfolio. We maintain an investment policy
     that ensures the safety and preservation of our invested funds by limiting
     default risk, market risk and investment risk. As of March 31, 2001, we had
     $6,329,000 of cash and cash equivalents and $3,000,000 of short-term
     investments with a weighted average variable rate of 4.81% and 5.09%,
     respectively. As of December 31, 2000, we had $10,827,000 of cash and cash
     equivalents and $1,096,000 of short-term investments with a weighted
     average variable rate of 6.44% and 6.69%, respectively.

          We mitigate default risk by investing in high credit quality
     securities and by constantly positioning our portfolio to respond
     appropriately to a significant reduction in a credit rating of any
     investment issuer or guarantor and by placing our portfolio under the
     management of professional money managers who invest within specified
     parameters established by the Board of Directors. The portfolio includes
     only marketable securities with active secondary or resale markets to
     ensure portfolio liquidity and maintains a prudent amount of
     diversification.

     We currently have no short or long-term debt.

                                       11
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued).

     (b) Qualitative Information About Market Risk

          While our consolidated financial statements are prepared in United
     States Dollars, a portion of our worldwide operations have a functional
     currency other than the United States Dollar. In particular, we maintain
     operations in Germany, Japan, Korea, the Netherlands, Poland and the United
     Kingdom, where the functional currencies are: Deutschemark, Yen, Won, Dutch
     Guilder, Zloty and British Pound, respectively. Most of our revenues are
     denominated in the United States Dollar. Fluctuations in exchange rates may
     have a material adverse effect on our results of operations and could also
     result in exchange losses. The impact of future exchange rate fluctuations
     cannot be predicted adequately. To date, exchange fluctuations have not had
     a material impact on our earnings and we have not sought to hedge the risks
     associated with fluctuations in exchange rates, but may undertake such
     transactions in the future. We do not have a policy relating to hedging.
     There can be no assurance that any hedging techniques implemented by us
     would be successful or that our results of operations will not be
     materially adversely affected by exchange rate fluctuations. Our foreign
     assets are not material.

                                       12
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

        Neither the Company nor any of its subsidiaries is a party to, nor is
     their property the subject of, any material pending legal proceeding. The
     Company may, from time to time, become a party to various legal proceedings
     arising in the normal course of its business.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

ITEM 5.  OTHER INFORMATION

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

     The exhibits required to be furnished are listed in the Exhibit List
following this Report


(b)  REPORTS ON FORM 8-K

     None.

                                       13
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                     VERTEL CORPORATION
                                     (Registrant)


Date: May 14, 2001                   /s/  CRAIG S. SCOTT
                                     --------------------
                                     Craig S. Scott
                                     Vice President, Finance and Administration,
                                     and Chief Financial Officer
                                     (Principal Financial Officer)

                                       14
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------

3.3 (and 4.1)  Amended and Restated Articles of Incorporation of the Registrant.
               (10)

3.4 (and 4.2)  Bylaws of the Registrant, as amended to date. (12)

3.5            Certificate of amendment to Company's articles of incorporation,
                 as filed with the California Secretary of State on April 7,
                 1998, changing the Company's name to Vertel Corporation. (6)

10.5           1991 Employee Stock Purchase Plan and form of subscription
                 agreement thereunder. (2)

10.6           Form of Indemnification Agreement. (1)

10.22          Lease Agreement between the Registrant and Moorpark Associates, a
                 California Limited Partnership, dated February 5, 1993. (3)

10.32          1996 Directors' Stock Option Plan and forms of option agreement
                 thereunder. (5)

10.48          Lease Agreement between the Registrant and Nomura-Warner Center
                 Associates, L.P., dated November 26, 1996. (4)

10.68          Form of Retention Agreement between the Company and each of its
                 officers. (7)

10.72          Employment Agreement between the Company and Cyrus D. Irani dated
                 January 12, 1999. (8)

10.75          Amended 1996 Directors' Stock Option Plan and form of option
                 agreement thereunder. (8)

10.76          Amended 1998 Stock Option Plan and form of option agreement
                 thereunder. (8)

10.77          Employment Agreement between the Company and Stephen J. McDaniel
                 dated November 1, 1999.(8)

10.80          Amendment No. 1, dated December 3, 1999 to the Employment
                 Agreement between the Company and Cyrus D. Irani. (8)

10.81          Vertel Corporation 2000 Stock Option Plan (9)

10.82          Employment Agreement between the Company and Tonia G. Graham
                 dated July 5, 2000. (11)

10.83          Employment Agreement between the Company and Craig S. Scott
                 dated December 1, 2000. (11)

11.0           Statement re: Computation of per share earnings (12)


(1)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 16(a), "Exhibits," of the Registrants Registration
     Statement on Form S-1 and Amendment No. 1 thereto (File No. 33-43544) which
     became effective on December 9, 1991.

(2)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 6(a), ''Exhibits,'' of the Registrant's Quarterly Report
     on Form 10-Q for the fiscal quarter ended September 26, 1992.

(3)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 14(a)(3), "Exhibits," of the Registrant's Annual Report
     on Form 10-K for the fiscal year ended January 2, 1993.

(4)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 14(a)(3),  "Exhibits," of the Registrant's Annual Report
     on Form 10-K for the fiscal year ended December 28, 1996.

(5)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 14(a)(3), "Exhibits," of the Registrant's Annual Report
     on Form 10-K for the fiscal year ended December 27, 1997.

(6)  Incorporated by reference from registrant's report on Form 8-K as filed
     with the Securities and Exchange Commission on April 7, 1998.

                                       15
<PAGE>

EXHIBIT INDEX (continued)

(7)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 14(a)(3), "Exhibits," of the Registrant's Annual Report
     on Form 10-K for the fiscal year ended December 31, 1998.

(8)  Incorporated by reference to identically numbered exhibits filed in
     response to Item 14(a)(3), "Exhibits," of the Registrant's Annual Report
     on Form 10-K for the fiscal year ended December 31, 1999.

(9)  Incorporated by reference to identically numbered exhibit filed in response
     to Item 6(a), "Exhibits," of the Registrant's Quarterly Report on Form 10-
     Q for the fiscal quarter ended June 30, 2000.

(10) Incorporated by reference to identically numbered exhibit filed in response
     to Item 6(a), "Exhibits," of the Registrant's Quarterly Report on Form 10-
     Q for the fiscal quarter ended September 30, 2000.

(11) Incorporated by reference to identically numbered exhibits filed in
     response to Item 14(a)(3), ''Exhibits,'' of the Registrant's Annual Report
     on Form 10-K for the fiscal year ended December 31, 2000.

(12) Filed herewith.

     (b) Reports on Form 8-K

     None

                                       16